So much for the idea that the affidavit problem is a mere technicality and a mere operational hassle for the banks. They had clearly viewed complying with their own agreements as an option, not a requirement, with the savings for cutting corners only somewhat offset by the costs of getting caught from time to time.

Some jurisdictions aren’t buying the banks’ “crime pays” logic. These abuses challenge the basic principles of the rule of law.

The latest salvo is a lawsuit by the Ohio state attorney general against GMAC for filing false affidavits. The full text of the suit is here. From Richard Corday, the attorney general, is seeking both fines of $25,000 per false affidavit plus a preliminary and permanent injunction against GMAC foreclosures. In other words, he wants them out of that business in his state. He has also sent letters to four other major lenders in Ohio (Bank of America, JPMorgan, Citigroup and Wells Fargo) and clearly also has them in his crosshairs.

From his statement:

The actions by lenders that I am talking about today show gross disregard for the integrity of this legal process and for the private property rights of homeowners.

We are talking about lenders and servicers treating foreclosure not as a legal proceeding that deserves the careful attention of the property owner, the servicer of the mortgage and the courts, but rather as a production line making widgets, that accords foreclosures little deliberate accuracy that the law – or for, that matter, basic courtesy and common sense – mandates be given to such serious matters.”

Admittedly, the affidavit problem is a secondary front in the overall bank “my dog ate your mortgage” mess. But the fact that a supposedly minor problem may not prove to be so minor illustrates that all these battles will be hard fought and thus more costly than the banks’ breezy assurances would lead one to believe.

The ultimate objective is to break the excuses that the banks have been using to avoid doing serious principal writedowns. If one state is able to get a mass settlement, whether in the course of private action or state attorney general suits and investigations, it will be a precedent that other banks will find difficult to ignore.

The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.

I don’t think that’s necessarily going to be the end result of this, but for the moment, Cordray is suing GMAC, and all he has to prove is that the lender knowingly presented false affidavits and false documents to the court. Even the hundreds of cases he suggested GMAC committed fraud in would amount to a significant fine.

What’s more, Cordray sent letters seeking meetings with the other four top lenders in the state – – to discuss their use of robo-signers and how they plan to remedy the practice. He certainly sounded like someone ready to include them in future lawsuits…..
Cordray said he was in contact with other Attorneys General across the nation about this matter, and that there is “deep concern” nationally about these practices.

Corday also rebutted the “two wrongs make a right” or deadbeat borrower argument:

When challenged by one reporter about the fact that the borrowers were in fact delinquent and that merits some action on the part of the lender, Cordray struck back. “What each side merits is that proper legal processes be carefully followed… If we would file a case with an affidavit we know to be false, that is seen as a very serious matter by the court. I don’t see why this should be taken any more lightly.”

In other words, the law must apply equally to big as well as small fry, and banks can’t be permitted to abuse court proceedings to tip the scales of justice in their favor.

17 comments

Great contact our Arizona Attorney General Terry Goddard and tell him to get with it.

My concern though is if you hit the banks for that 10billion what will happen to homeowners who have been, and are suing to save their homes???? I mean really the gov owns GMAC for all intents and purposes.. so the gove will pay the gov and then I suppose the investors will be getting their share back first and what happens to the people that brought this to the forefront… the homeowners who have been suing and seeking relief????

As I feared, legislation passed Congress last week without debate to require state courts to accept as valid notarizations signed in other states. ‘The legislation could protect banks and mortgage processors from liability for false or improperly prepared documents.’ This allows computer generated notarizations which only some states allow to be valid in all states and presumably any other irregularities could not be challenged.
I don’t know how to make a link here so this is the best I can do. http://www.reuters.com/article/idUSTRE6955YX20101006

Just wait folks, the feds will jump in, the banks will get off with a wrist slap accompanied with a few show trials and ordinary american citizens will get screwed. Some folks will want to prattle on about “rule of law” or “contract law” or ” equal justice for all” however the fact is that these are just hollow words.

Isn’t the the modus operandi of all the big corporations? A few fines here and there are just a (small) cost of doing business. Nobody is ever held to account, and at worst the CEOs find another company to fleece and the shareholders pay.

Looks like the same crowd that didn’t know how to perform due diligence 101 when processing mortgage applications that brought about the sub prime crisis, have now focused their incompetence in processing foreclosures. And I’m suppose to be surprised?

Behind this stands an automated digital processes created to save money and time how often in our modern business life have we seen these processes installed and at the end of the day little or no money has been saved when one views the every larger IT staff and budget plus the outsourcing which is an attempt to justify the initial investment which continues to need additional software and equipment upgrades.
Real people making critical decisions may in the final analysis win out over these powerful and expensive systems.

Clearly, “[t]hese abuses challenge the basic principles of the rule of law”, but are fines and judgments the extent of remedies or will people (not corporations) finally face criminal charges and prison terms for fraud? And is this strictly a matter of state law or will the DOJ possibly take some casual interest?

The “rule of law” has now become a rather antiquated notion—a farce, really. Even then, officials can be bought and laws can be amended, if necessary, by fast-track legislation and then endorsed by SCOTUS. What interesting times these are.

Rokakis, the Cuyahoga County Treasurer was trying to confront this around 2002. Cleveland passed some local standards laws. The state legislature over-rode the local ordinance, saying that Columbus knew more than our not-lying local eyes. But nobody cared, since metro Cleveland is not 65% of the state vote. I will remember this when anyone in Cincinnati, Dayton, Columbus needs anything, like my vote. Where was Chris Redfern? Collecting contributions rather than protecting his voters.

The link to the Ohio AG’s new lawsuit is a PDF. Well worth reading, especially the 150+ pp. of exhibits which include scores of the infamous Stephan Affidavits, topped off at the end with a recent Maine court decision granting sanctions for bad faith filing of a Stephan Affidavit after GMAC was ordered by a FL court to cease using such affidavits.

Interesting point. I have had foreclosure initiated against my present home twice in the last four years (due to the lovely HAMP process). After bringing the Mortgage current, I was charged close to $2,000.00 each time for legal fees, that were then rolled into the principal that I owe. Think their might be some redress for folks like me in all this?

As an Ohio resident this is too little too late, but at least it is a shot at the “law and economics” crowd. When the R’s ran the state, as they soon will again I think, it was clear that any cash flow was a sacred cow that always had the right of way over citizens.It was ten years ago, or a bit more, that some of this was painfully obvious. There were meetings and discussions but no true broad aganda until it went beyond the cities.

Here in Dayton it is curious indeed to see how even the reformers are still in the thrall of the rental associations and the realtors. So if I have this right Gm was screwing the state by cutting more and more jobs as they fiddled up in Auburn, and then burned the workers and their relatives when they couldnt make the payments on their homes through GMAC? Then they left us all with a diminished tax base for education, police & fire and general rehab of the auto industry implosion. TYVM and have a nice day!

So how many of the 7.1 million foreclosures of the past couple years – about 10,000 per day – were fraudulent in this manner? And what about lender mendacity in forcing applicants to Obama’s HAMP and MFA programs into foreclosure? Thanks, Yves, for your posts on this topic.

And thanks commenters for informative comments, esp Marion for her link to the Reuters article: